Darden’s Release of Red Lobster Catches Investors by Surprise

Darden Restaurants (NYSE:DRI) just made a huge announcement that is sure to catch investors by surprise. The Orlando-based company is the struggling owner and operator of many full-service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s Prime Seafood, and Wildfish Seafood Grille brand names. On January 1, it owned and operated approximately 2,100 restaurants. But that is all about to change, as the company has decided to release its Red Lobster holdings.

Darden is selling Red Lobster, perhaps the most popular of its holdings behind Olive Garden. This is somewhat of a surprise, although the Street was expecting some sort of change. This is because the company announced late last year that it planned to either spin off or sell Red Lobster to improve its financial performance. Both Olive Garden and Red Lobster have been losing customers in recent years, and the company has tried various menu changes and marketing campaigns in hopes of winning back business.

How bad are the financials? Darden suffered a 19.6 percent plunge in profit year over year as its two largest brands continued to struggle with depressed sales and foot traffic. Revenue dipped 1 percent to $2.2 billion, missing Wall Street’s expectations. During the most recent quarterly earnings, the stock dropped to 82 cents per share, or $109.7 million, from $1.02 a share, or $134.4 million a year earlier. There are about 700 Red Lobster locations and 830 Olive Gardens in North America. Same-store sales at Olive Garden slid 5.4 percent during the quarter.